For decades, spousal maintenance (alimony) has been tax deductible for the paying spouse and counted as taxable income for the receiving spouse, but as of January 1, 2019, sweeping changes in the law took effect.
Effective January 1, 2019, spousal maintenance in Colorado and all 50 states will no longer be tax deductible for the paying spouse, nor will the recipient spouse be taxed on it. Prior to January 1, 2019, the money paid to a former spouse under a legal separation or divorce agreement was deductible by the payer spouse, and the recipient spouse had to count it as income, but now that’s all changed.
Spousal Maintenance Requirements
A payment is considered to be spousal maintenance if:
- The spouses did not file a joint tax return;
- The payment was cash, a check or money order;
- The payment was made to a current or former spouse under a separation or divorce agreement;
- The divorce or separation agreement did not state that the payment was not spousal maintenance;
- The spouses did not live together when the payments were made;
- The paying spouse is not liable to make the payment after the recipient spouse’s death; and
- The payment is not categorized as child support or part of a property settlement.
The following types of payments are NOT treated as spousal maintenance in any state: child support, noncash property settlements, use of the paying spouse’s property, and voluntary payments not required in the divorce agreement.
For example, if a man were to give his former wife an additional $1,000 to help out with her bills one month, it would not be considered spousal maintenance because it was separate from her regular monthly payments.
The tax overhaul was a result of the Tax Cuts and Jobs Act (TCJA), which altered the former law that had been on the books for 75 years. The new law does not affect any divorce agreements signed before December 31, 2018.
To learn more about the 2019 changes to the spousal maintenance law and how it’s treated for tax purposes, contact Jones Law Firm, PC to meet with a Denver divorce lawyer.